My laptop was not booting up (showing i/o error) so I took out the 2.5 sata hard drive, brought it to a shop and asked them to check it out. It showed up on their PC fine via SATA2usb adapter. So I bought myself one of those things and proceeded to connect to my desktop pc. Now I'm not a techie but I was confident that this was a simple job, just connect and go. Turns out it wasn't. I did read online and talked to the shop that for a 2.5 drive you don't need external power so I tried it without power first but when it didn't work, I connected the power! THAT turned out be a costly mistake. My D-LINK DWA-160 USB ADAPTER (n wireles) was literally smoking up! That was garbage after that. So was my old school IBM PS/2 keyboard... though all my usb ports and ps/2 port work fine.

Before all this, my onboard audio was working fine but I think that also has fried somehow. I plug in my headphones, no popups from Realtek audio manager like before. Removed drivers, installed again, restarted, disabled in BIOS then enabled, nothing works.

What do you gather from all this?

How did the D-Link N adapter fry up? Why would the Ps/2 keyboard not function at the same time? Finally, has the onboard audio fried? If so, how? I hope I can RMA this board with no problems... Please help me out here.

It sounds like your external power adaptor dumped dirty power or something higher than +5V straight into the motherboard's USB, which may have damaged everything attached to +5V on the board... That means USB, PS/2, and possibly some chips on the mother board.
I've seen a lot of customer reviews of those USB adaptors smoking when not used exactly right, which swayed me from buying one. A 5 cent diode or micro fuse in the circuit would've prevented that failure that you witnessed, but someone was cutting corners when they designed that adaptor.

__________________"The computer programmer says they should drive the car around the block and see if the tire fixes itself." [src]